Scottish business remains woefully unprepared for the oncoming digital onslaught. To leverage the full potential of new technology and reduce the threat of becoming a nation of digital dinosaurs, a new breed of senior executive is urgently required – Digital Business Leaders.

These are two of the main conclusions emerging from our recent ‘Digital Disruption Report’ prepared on behalf of the Federation of Small Business in Scotland. The report raises important implications for Scottish companies, policy makers and the business support network.

Digital Disruption and Scottish Business

The core premise of the report is that we have entered a new and even more revolutionary phase in the development of digital technology; a period characterised by turbulent digital change and digital disruption. Across a wide range of industries, digital technology is threatening to disrupt existing value chains, business models and traditional ways of doing things.

A non-exhaustive list of twenty examples of digital disruption is presented. These include well publicised cases such as Airbnb and Uber. Less well-known, but equally important, examples across a broad range of sectors would include Agriculture (Big Data); Accountancy (Cloud Services); Construction and Building Services (3D Printing); Business Finance (Crowdfunding); Healthcare (Wearable Technology); Distribution (Drones and Autonomous Vehicles); Fast Food (Automation); Higher Education (MOOCs – Massively Open Online Courses); Retailing (Showrooming); and Additive Manufacturing.

No industry, no company in Scotland should consider itself immune from the threat of being disrupted. The innovations witnessed since the advent of the Internet twenty years ago are nothing compared to what is coming over the next few years. We ain’t seen nothin’ yet.

The prime cause of disruption is the rapid convergence of closely related disruptive technologies including ubiquitous broadband and mobile connectivity, social media, enterprise social, the Cloud, Big Data, Internet of Things, wearables, intelligent machines, automation and the rise of Gen C – a generation of constantly connected customers and constantly connected employees.

As a consequence, Scottish companies now operate in a digital business environment completely different from even a few years ago. Are we well positioned to maximise the opportunities presented by new technology for driving future growth and competitiveness? Unfortunately, the evidence would suggest not.

While there is growing recognition of the need for our businesses to transform digitally, a major ‘strategic gap’ exists between the current use of digital technology by Scottish companies and the dynamic pace of digital change taking place, between where we are and where we need to be. Digital led change is taking place at a much faster rate than the ability of Scottish business to adapt.

We need look no further than the Government’s own statistics to support the view that the majority of businesses in Scotland remain woefully unprepared for the coming digital onslaught. Based on a representative sample of 4,002 companies, the Digital Economy Business Survey published in March of last year provides the most recent and comprehensive evaluation of the digital progress being made by Scottish business. The report concludes that only 3 per cent of surveyed companies could be described as ‘Digital Champions’ with only 0.2 per cent being ‘Digital Pioneers’. By contrast, a full 81 per cent were classified as ‘Disconnected Doubters’ (13%), ‘Basic Browsers’ (38%) or ‘Tentative Techies’ (30%).

These are very worrying statistics especially given the fact that digital business support to companies in Scotland has been available for almost two decades.

In an era where digital business transformation has become critical, the lack of digital progress being made by the majority of companies in Scotland represents a major threat to the future competitiveness of the Scottish economy.

Adapt or Die

Given the potential impact of digital disruption on employment, growth and national competitiveness, it is essential that Scottish companies make digital a top priority NOW. Developing an appropriate response to digital change is the number one challenge facing Scottish business today. Nothing else comes close. It is no longer acceptable for digital to be seen as a peripheral activity or ‘not relevant to us.’

To remain competitive Scottish business needs to transform digitally, embedding digital at the core of everything they do. This will require the development of digital capabilities in at least three main areas:

External: the use of digital to support customer engagement, to deliver exceptional customer experiences and to maximise the efficiency and effectiveness of the sales and marketing effort.

Internal: digital applied to internal processes, to build agile, fast moving, flexible organisations capable of adapting to a world of rapid change.

Strategy: the development of new business models supported by digital technology.

With a recent report suggesting that four out of ten industry incumbents, across a broad spectrum of sectors, will be displaced by digital disruption over the next five years, Scottish business faces a stark choice – ‘adapt or die’. There are already many examples of companies who have become, or are in the process of becoming, digital dinosaurs due to their inability to adapt.

To support digital business transformation, we urgently require a new breed of senior executive – Digital Business Leaders: leaders who combine high level business knowledge, experience and understanding with the ability to develop digital transformation strategies fully aligned with and supportive of agreed business goals and objectives. Leaders with the confidence and personal skills to drive organisational digital led change. Such leaders remain in very short supply.

Public Policy Implications

While the ultimate responsibility for moving to a much higher level of digital maturity lies with business owners and senior executives themselves, digital disruption also raises important public policy issues.

In June of last year, an ‘Open Letter on the Digital Economy’ from a group of leading US technologists, economists and investors was published on the MIT Technology Review website. The letter called for radical changes in US public policy in a wide range of areas critical to digital success including education, infrastructure, entrepreneurship, trade and immigration. It also called for more research to be undertaken into the impact of digital disruption on the US economy and US businesses.

The ‘Open Letter’ could act as a blueprint for something similar in Scotland.

Digital is already a ‘top agenda’ issue for the Scottish Government with the stated objective of becoming a ‘World Class’ digital nation by 2020. The fact that digital change is taking place at a much faster rate than the ability of our companies to adapt makes it unlikely that this objective will be achieved at least in the business world.

Digital Business Support

The business support network too has a critical role to play, ensuring that the level and type of support available to businesses is ‘fit for purpose’ in an era characterised by turbulent digital change and digital disruption.

There needs to be a much stronger emphasis on creating more Digital Leaders to drive change. All network business advisers in Scotland need to become ‘digital’.

In terms of globalisation, the encouragement of SME exporting has been a major policy objective in Scotland for at least four decades. Much of the export support and advice available to SMEs, however, is stuck in a pre-digital time warp. We urgently require a ‘Digital Supported Export Programme’ to ensure that Scottish companies with export potential begin to leverage the full potential of digital technologies for overcoming barriers to international trade, leading to more rapid globalisation.

With some estimates suggesting that over 40 per cent of jobs could be replaced by digital technology over the next two decades, the time for action is now.

‘Digital Disruption and Small Business in Scotland: A Report for FSB Scotland’ is available here.